Make way Superannuation Complaints Tribunal (SCT) here comes the Australian Financial Complaints Authority (AFCA)
The Australian Financial Complaints Authority will replace the Superannuation Complaints Tribunal; the Financial Ombudsman Service (FOS); and the Credit and Investments Ombudsman (CIO), no later than 1 November 2018. The change will impact all financial firms, including insurers and regulated superannuation funds.
It is important to be aware that AFCA will publish the names of parties relating to direct complaints, increasing the reputational risk to trustees.
Our article focus is on the eventual phasing out of the SCT, predicted changes likely to be put in place for AFCA and considerations for superannuation funds, especially trustees.
Before you get too excited, let’s take a moment to understand what this means…
AFCA will be:
- Established as a private corporation
- Operated not-for-profit
- Free for members
- Funded by the financial services industry
- Independently chaired with equal number of directors per background
Financial firms (for the purpose of this article, trustees) will have a dispute resolution system that consists of:
- An Internal Dispute Resolution (IDR) procedure meeting the standard or requirements made or approved by ASIC; and
- Membership of the Australian Financial Complaints Authority
The IDR and External Dispute Resolution (EDR) framework currently provides access for consumers, small businesses and superannuation fund members who have a complaint against a trustee.
I am a superannuation fund trustee; how does this impact me?
There are several impacts to trustees worthy of consideration:
The new body – Australian Financial Complaints Limited
On 1 May 2018, the government announced the authorisation of Australian Financial Complaints Limited to operate AFCA. An independent director has been appointed along with an inaugural minority board of four, featuring an equal number of consumer and industry directors.
Membership of AFCA
All funds (trustees) will be required to become a member of AFCA and have until 21 September 2018 to do so. There will be a cost associated to this, which intends to fund the running of the scheme. This is a change from the current funding model, via ASIC and Treasury. AFCA will outline this process in the coming months.
What happens to current claims? Will they be closed? Do they need to recommence under the new regime? What happens to the SCT?
The SCT will continue to operate and resolve all open complaints
Existing complaints cannot be transferred across to AFCA. There will be information sharing arrangements in place, but noting this is not meant to act as a transfer mechanism.
- Consumers will continue to log complaints with the SCT until AFCA commencement on 1 November 2018.
- Any complaints withdrawn from SCT will not be able to be re-lodged with AFCA.
- The SCT is estimated to complete all open complaints by 30 June 2020 (TBA).
- For current complaints the existing lifecycle (link below) will remain.
Interestingly, whilst the number of resolved complaints is high, this continues to be outnumbered by the number of complaints lodged. This may impact the proposed SCT cessation date:
Tell me, what is the new EDR process?
Details are still to be finalised, so stay tuned, but one of the first priorities of the AFCA board is to commence public consultation on the AFCA terms of reference (known as the AFCA rules) as well as the interim funding model. This is likely to feature:
- A consistent approach to the decision-making processes so members and will know what to expect from AFCA.
- Exclusions for management of the funds and complaints already dealt with by SCT or a court.
- Discretion for AFCA to exclude complaints.
- AFCA may refer all new complaints, prior to being considered, back to the trustee. This provides the trustee a final opportunity to resolve the dispute in a defined timeframe (subject to certain exceptions). The idea is to give the IDR process every opportunity to work. That said, AFCA can still accept a complaint without an IDR.
- Consumers may also lodge directly complaints with AFCA.
- To ensure fairness, an independent assessor will be appointed by AFCA to investigate complaints regarding how a dispute was handled.
- AFCA will also now publish the names of parties relating to complaints directly, increasing the reputational risk to trustees.
The idea to provide a 'one stop shop' EDR scheme is admirable with AFCA to handle financial disputes and to provide 'fast and fair resolution of financial complaints in a way that is binding on financial firms'. That’s well and good, but trustees (and members alike) need to await for clarity on how complaints are processed.
Disclosure and communications
Our industry is well versed in change and the disclosure herewith. This one is no different. Trustees will need to pay particular attention to:
- Product and fund publication disclosure (the usual suspects!):
- Product disclosure statements
- Financial services guide
- Public and secure member website disclosures
- Member statement disclosures
- How we communicate the changes with members
- Internal and external dispute resolution processes
- Fund specific policy, processes and or compliance assurance processes
- Current claims versus future claims handling
I would like to start now...can I? Or what still needs to happen?
As you will have noted, several fundamentals are yet to be determined but that is no reason to not start now! The key actions still to be finalised are:
- Membership of AFCA requirement (by 21 September 2018)
- AFCA commences accepting complaints (by 1 November 2018)
- SCT ceases accepting complaints (on 30 September 2018)
- SCT ceases operation (TBA 30 June 2020. Date to be fixed by proclamation)
Whilst ASFA have provided a submission to ASIC urging “transitional relief through to 30 June next year for super funds due to increased complexity for regulated superannuation funds”, it would be prudent for funds to commence reviewing:
- Transitional arrangements from SCT to AFCA
- Internal and external dispute resolution processes
- Member communications, product disclosure and other fund publications
- Fund policy and procedures
- Compliance and assurance systems and procedures
- Financial impact on funding requirements (including resources)
- Management of existing internal and external disputes
- Service provider (administrator) impact assessment and planning
Like to know more? Helpful resources
AFCA will release a new website shortly, but in the interim, it may be helpful to look through these resources for the back story and most recent outcomes:
- Media Release – Putting Consumers First: Australian Complaints Authority Takes Shape, (1 May 2018).
- Consultation Paper: Regulatory Guide 139 Oversight of the Australian Financial Complaints Authority, (5 March 2018).
- Attachment to Consultation Paper 298: Regulatory Guide 139, Oversight of the Australian, Financial Complaints Authority, (5 March 2018).
- Treasury Fact Sheet – The Australian Financial Complaints Authority (AFCA) – Government Response, (November 2017).
- Establishment of the Australian Financial Complaints Authority Consultation Paper, (November 2017).
With 1 November fast approaching, don’t complain (pun intended) but do take stock to be ready.
Daniel De Marinis – Lead Consultant
QMV provides trusted, hands-on advisory, consulting and technology to superannuation funds, trustees, administrators and wealth management organisations. For further information please telephone our office p +61 3 9620 0707 or submit an online form.
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